Chapter 4 - Physical Distribution Management

Transportation
Management
(BML 3113)

CHAPTER 4: PHYSICAL DISTRIBUTION MANAGEMENT

DISTRIBUTION MANAGEMENT

Distribution management refers to the process of
overseeing the movement of goods from supplier or
manufacturer to point of sale. It is an overarching term
that refers to numerous activities and processes such as
packaging, inventory, warehousing, supply chain, and
logistics.

Distribution management is critical to a
company's financial success and corporate
longevity. Executing it successfully requires
effective management of the entire distribution
process

Materials Physical Distribution
Management Management

Supplier `Manufacturer Customer

Inbound Outbound
Logistics Logistics

Logistics Management

OBJECTIVES OF PHYSICAL DISTRIBUTION

1. Meeting standard of customer service
2. Reducing total distribution cost
3. Reducing cycle time

1. Meeting Standards of Customers Service
In physical distribution availability,
timeliness, and accuracy are important
dimensions of customer service. Companies
set customer service standards based on
one, or a combination, of these dimensions.
Availability refers to the percentage of
orders that can be filled from a company’s
existing inventory.

OBJECTIVES OF PHYSICAL DISTRIBUTION

2.Reducing Total Distribution Costs:
Although, physical distribution managers try
to minimize the costs associated with order
processing, inventory management,
materials handling, warehousing, and
transportation. A total-cost approach to
physical distribution enables managers to
view physical distribution as a system rather
than a collection of unrelated activities. This
approach shifts the emphasis from lowering
the separate costs of individual activities to
minimize overall distribution costs.

OBJECTIVES OF PHYSICAL DISTRIBUTION

3. Reducing Cycle Time:
Another important goal of physical
distribution involves reducing cycle time,
the time needed to complete a process.
Doing so can reduce costs and /or increase
customer service. Many companies,
particularly overnight delivery firms, major
news media, and publishers of books of
current interest, are using cycle time
reduction to gain a competitive advantage.

TYPES OF DISTRIBUTION

Commercial Physical
Distribution Distribution

Study Area Map

Supply Chain Management
(a series of connected logistics flows)

Logistics Management

Materials Management Physical Distribution

Incoming transportation Traffic management
Receiving Shipping
Purchasing Customer service
Incoming warehousing Finished goods
Inventory control

Physical Distribution

The process of planning, implementing, and controlling the
efficient, effective flow and storage of goods, services, and
related information from point of origin to point of
consumption for the purpose of conforming to customer's
requirements.

Physical distribution cost can represent 20% or more of the
selling price of a product.

The goal is to achieve ultimate efficiency in delivering raw
materials and parts, both partially and completely finished
products to the right place and time in the proper condition.

Physical Distribution

The management of the efficient

transfer of goods from the place of

manufacture to the point of sale or

consumption. Distribution

management includes such activities

as warehousing, materials handling,

packaging, stock control, order

processing, and transportation.

Physical Distribution

Physical Distribution

S MANUFACTURER DISTRIBUTION C
U SYSTEM U
P S
P T
L O
I M
E E
R R

Physical Manufacturing Physical distribution
Supply Planning & Control

Dominant Flow of Product and Service
Dominant Flow of Demand and Design Information

The Channels of Distribution

Selling through Selling through
DIRECT CHANNEL IN-DIRECT CHANNEL

SELLING THROUGH DIRECT CHANNELS

This is the oldest, shorter and the simple channel of
distribution. The producer sells the product directly
without involvement of any middleman. The sale can be
made door to door through salesman, retail stores and
direct mail.

Advantage of selling through direct channels
➢ It is simple and fast.
➢ It is economical.

Disadvantages of selling through direct channels
➢ Non-availability of expert services of middle man.
➢ Large investment is required.

SELLING THROUGH IN-DIRECT CHANNELS

According to this method of indirect selling, product is
passed on to the customers through intermediaries,
known as wholesalers, retailers and agents.
These channels may be as under:

SELLING THROUGH IN-DIRECT CHANNELS

1. Producers -> Wholesalers -> Retailers -> Customer or 2 Level
Channel:
It is also known as traditional or normal channel of distribution. The
common practice is that the manufacturer sells goods in large quantity
to wholesalers, who sell goods to retailers in small quantity. Finally
goods are sold to customers in pieces.

2. Producer -> Agent -> Retailer -> Consumer or Two level Channel:
The common practice in this two level channel is that the goods are sold
to the agent in bulk. The agent sells goods to retailer, who sells goods to
customers in pieces. This channel is suitable where the retailers are few
and geographically centered. This channel is commonly used in textile,
machinery, equipment and agricultural products.

SELLING THROUGH IN-DIRECT CHANNELS

3. Producer -> Agent -> Wholesaler -> Retailer -> Customer or
Three level Channel: The common practice in this three level channel
is that goods are sold by the producer to the agent, who sells it to the
wholesaler, who sells to the retailers who finally sells goods to
customers. This is the longest channel of distribution. This practice is
useful, when the producer wants to the relieved of the problem of
distribution. This channel is popularly used in textile.

4. Producer -> Retailer -> Customer or One level Channel:

Under this channel the producer sells goods to retailers, who sell the
goods to customers. This channel is popular with the departmental
stores, chain stores and supermarkets etc., because these are large scale
retailers.